We receive many questions from taxpayers who are confused as to why they receive an IRP5/IT3a for retirement fund withdrawals or transfers and how to report this (if at all) in their tax return. If this applies to you, read on and let us clarify the issue for you.

IRP5/IT3a for retirement fund withdrawal, resignation or transfer

If you withdraw money or retire from your retirement fund and receive a lumpsum, the fund will have to apply for a tax directive for you and should also issue you an IRP5/IT3a. Similarly, if you transfer your retirement money into a preservation fund and don’t receive any cash in your bank account, the same process is followed and you should still receive an IRP5/IT3a. What’s important to understand is that it does not matter if you pay tax or not or if you actually receive the money in your account, the same process is followed.

How does this affect my tax return when I have to submit it to SARS?

In both of these scenarios, SARS will have record of the transaction and the IRP5/IT3a will be pulled into your tax return in exactly the same way that your salary IRP5/IT3a is included.

Therefore, don’t be surprised to see an extra IRP5/IT3a from an ‘unknown’ employer included in your tax return. This is simply the one issued by your retirement fund with details of your lumpsum withdrawal on it. The lumpsum may be coded to most commonly used source codes 3920, 3907 or 3915 and it will show on it the tax you paid (if you paid tax at all). Rest assured this lumpsum won’t be taxed again, nor will it affect the tax you pay on your assessment or make any refund owed to you smaller.

If you are using TaxTim to assist you, don’t forget to include this IRP5/IT3a when capturing your IRP5/IT3a details. If you choose the easier option, which is to let TaxTim import your IRP5 directly from SARS eFiling, then you won’t need to do a thing and the system will do the legwork for you!

Hopefully this debunks the mystery surrounding your IRP5/IT3a lumpsum but don’t hesitate to contact our Helpdesk if you still have any questions. Our team of expert Tax Practitioners are on stand-by ready to assist!